The Gallery mall is ripe for rebirth

Has the Gallery's time finally come - again?

Thirty-seven years after the Center City mall broke new ground in urban retailing, the Market East shopping center is anything but cutting-edge. It is tired, mismatched to its surroundings, and a drag on the wider Center City boom.

Its owner, publicly traded Pennsylvania Real Estate Investment Trust, has promised to reverse that. Just how and when, however, has been a bit hazy.

Now, there is increasing evidence that a critical mass is building and that perhaps, as promised by PREIT chief executive officer Joseph Coradino, a transformative project is near.

In April, PREIT purchased 901 Market St., now occupied by Kmart, for $60 million.

"I think that is a pretty good indication they are serious about this," said Alan Greenberger, deputy mayor for commerce. "You don't spend $60 million to do nothing."

Then, late last month, Kmart announced it would be closing in April, opening that Gallery space for reuse months sooner than expected.

Now, PREIT has control of three blocks east of City Hall and the opportunity to correct some of the well-intentioned mistakes made three decades ago, when it was believed that a suburban-style indoor mall would give East Market Street a much-needed boost.

Instead, the enclosed, bunker-like facility proved unattractive to upscale city shoppers, leaving it increasingly a magnet for low-end retailers. Though the Gallery's concourse area is vibrant today, its upper floors are underperforming, with many vacancies and little foot traffic.

PREIT officials did not respond to requests for interviews for this article, but there is plenty on the public record to offer a peek into their thinking.

One thing that has been much discussed is opening the mall more to the streets surrounding it.

"They have had plans for almost four years to basically create an active street front on Market Street," said Paul Levy, executive director of the Center City District, "to break down the solid walls and have lots of doors and windows and restaurants and cafés opening to the street."

Such a reimagining would dramatically enliven what is now a rather prosaic stretch of Market Street.

It also would require a lease change, since at the moment PREIT does not control the exterior walls of the Gallery, which originally was a $101 million publicly financed project and is still in the public domain. Greenberger said a new lease has been prepared to give PREIT that control once the company is ready to move ahead on renovations.

Those renovations will be costly, putting more pressure on tenant rents. Which argues for more successful tenants.

For some time, PREIT has made it clear that it is seeking upscale retailers to anchor its reenvisioned mall - or certainly retailers that could do more to exploit the strengths of the location, now numerous thanks to the expanded Convention Center, the Market East transit station, and the growing downtown residential population.

At the moment, there is little about the Gallery to appeal to any of the above.

"It is not oriented to the current visitors, let alone the dramatic growth in residential downtown," Levy said. "No one thinks to go to Market East to shop."

PREIT has signaled two possible directions. One would be to find a high-end anchor or two, such as Bloomingdales, to provide a draw for more moneyed consumers.

In June, Coradino told an audience of retailers that "another possible alternative is what we call 'Fast Fashion and Food,' if you will, and that is to redevelop it more consistent with some of the more trendy suburban mall tenants - like the Forever 21, the H&M, the Uniqlo, as well as restaurants and other food choices."

Robert F. McCadden, PREIT's chief financial officer, told analysts in April that the direction ultimately would be decided by the retailers.

"For instance, if we were to secure a high-fashion luxury department store as an anchor, that would end up having it be one kind of a project," McCadden said. "Conversely, if we were to secure more of a discount or popular-price department store, or some kind of a nontraditional retail anchor, large food market, etc., they would really define the project differently."

How it plays out is dependent on the complicated dance that mall owners perform with potential tenants, who typically want to know who their neighbors will be before committing.

"There are no pioneers in retail," is how Levy described it. "No retailer will go into a new location in hopes a market follows."

Rather, national brands need to be convinced they will have the company of other market-creating sellers. All of which means PREIT must sell itself to multiple retailers simultaneously, with the promise to each that the others will come along if it does.

It is that process that has seemed to be the biggest drag on the project.

City Councilman Mark Squilla, whose First District includes the neighborhood around the Gallery, said his discussions with PREIT have convinced him that a resolution was near.

"All the pieces are there," Squilla said. "People are looking to move to the area. All of this is coming together at a good time."

Which is exciting, said Linda Shein, managing director of the Jay H. Baker Retailing Center at the University of Pennsylvania's Wharton School.

"It has been a long time coming, but it has the potential to be a new centerpiece for Philadelphia," Shein said. "It is an extraordinary opportunity just waiting to happen."